The Business Case for Diverse Perspectives

June 18, 2024
Michelle Neal, Head of the Markets Group
Remarks at the Bloomberg Intelligence Women in Finance: Fixed Income Halftime Report, New York City As prepared for delivery

Good evening. It is a pleasure to speak with you tonight, surrounded by an impressive group of women, at the Bloomberg Intelligence Women in Finance: Fixed Income Halftime Report conference. This event gives us an opportunity to reflect on the financial market landscape, discuss topical issues across financial markets, and celebrate our collective contributions to the finance industry over the years. So, welcome!

Today, my remarks will focus on the business case for diversity across the essential work of the New York Fed, in particular the Markets Group. First, I’ll highlight our wide-ranging work and its impact. Second, I’ll dive into our market intelligence-gathering efforts and discuss how this information is used to inform policymaking. Then, I’ll close by talking about how we ensure diverse perspectives are carefully assessed and incorporated into our work, reflecting the range of views held in the market. As always, the views I express today are mine alone and do not necessarily reflect those of the New York Fed or the Federal Reserve System.          

The Role of the Markets Group

The New York Fed has a unique role in the Federal Reserve System. The New York Fed is authorized by the Federal Open Market Committee (FOMC) to execute open market transactions in both U.S. dollar and foreign currencies for the Federal Reserve’s securities portfolios, and maintain currency swap lines with foreign central banks, among other activities. To effectively implement these responsibilities, the Markets Group is organized along six core functions. First, we implement monetary policy on behalf of the FOMC. Second, we monitor and analyze global financial markets, acting as the “eyes and ears” of the Fed in the financial markets. As part of this, we also sponsor a number of committees with official and private sector entities. Third, we produce five IOSCO-compliant daily reference rates for the world’s most important U.S. dollar secured and unsecured financing markets. Fourth, we support debt management and foreign exchange activities of the U.S. Treasury Department and conduct auctions and buybacks at the direction of the U.S. Treasury. Over the last four years, on behalf of the U.S. Treasury, our team has supported the auction and issuance of $85.1 trillion in Treasury securities, as well as $5.1 billion under the new buyback program launched in May of this year. While rare, we maintain readiness to conduct currency interventions at the direction of the U.S. Treasury. Fifth, we manage Discount Window activities for the Second District and provide collateral valuation and counterparty risk management for the Discount Window services of the Federal Reserve System as a whole. Finally, we provide account services to foreign central bank customers, including (1) custody services amounting to roughly $3 trillion in U.S. dollar assets, (2) foreign exchange customer transactions, and (3) swap lines and repos to support both broader wholesale funding markets and more targeted U.S. dollar funding requirements arising abroad.

The Markets Group conducts a wide range of open market operations in global financial markets. At the direction of the FOMC, we participate in repo, Treasury, agency, and international sovereign markets. In the four years following the onset of the COVID-19 pandemic, we executed $3.2 trillion in Treasury outright purchases, $3.1 trillion in agency MBS purchases, and $5.5 trillion in rollover of Treasury securities. Over this time, the daily take-up at the overnight reverse repo facility averaged $1.1 trillion, peaking at $2.6 trillion in December 2022. At the same time, in partnership with the U.S. Treasury and Federal Reserve System, and with the approval of the Treasury Secretary, we implemented a series of emergency lending facilities under Section 13(3) of the Federal Reserve Act to support credit and liquidity provision in the market. These facilities—including the Primary Dealer Credit Facility, Commercial Paper Funding Facility, Municipal Liquidity Facility, Primary and Secondary Corporate Credit Facility, and Term Asset-Backed Lending Facility—helped to ensure that businesses and households had access to credit during the economic shock of the global pandemic. At its peak, the Primary Dealer Credit Facility totaled $37 billion in March 2020. In December 2020, all other facilities peaked at $24 billion. Internationally, we passively manage a portfolio of euro- and Japanese yen-denominated assets that totals roughly $18 billion, conducting purchases and sales to meet an internal asset allocation target that is based on the FOMC’s objectives for foreign reserves.

Through our operations, we gain insights on market functioning, signals about the transmission of monetary policy, and intelligence on foreign exchange markets. We supplement these insights with data and analysis on a wide range of other markets, such as credit and equities. This enables us to share updates on financial market conditions with the FOMC and senior stakeholders across the Federal Reserve System. We collect market intelligence through both structured outreach, such as the Surveys of Primary Dealers and Market Participants conducted before each FOMC meeting, as well as through daily outreach to market contacts.

This is a lot of work—but it only scratches the surface of what we do in the Markets Group! In addition to our market monitoring and monetary policy operations, we provide liquidity domestically and across borders. Through the Discount Window, the New York Fed also bolsters confidence in our banking system, as do the other Reserve Banks through their engagement with financial institutions in their respective districts. We also support liquidity in the broader payments system through the availability of both intraday and term credit to depository institutions.

Leveraging their daily engagement with financial institutions, Markets Group staff have been key drivers in the design and operation of emergency lending facilities critical to stabilizing the U.S. financial system and the broader economy during periods of crisis over the past two decades. Looking beyond our borders, we maintain standing swap lines with foreign central bank counterparts to ensure well-functioning and liquid U.S. dollar funding markets. We also provide a range of custody and investment services to over two hundred official sector customers from all over the world.

As all of you know, financial markets are constantly changing. And, as such, so are we. In order to effectively support the mission of the New York Fed and the Federal Reserve System as a whole, we must anticipate, act, and adapt our work to an ever-evolving financial market landscape. We’re in the midst of the largest investment program in the history of the Markets Group, with a focus on its people, platforms, and processes. We’ve learned through crises to break up silos and embrace the importance of an adaptable workforce centered on skills, breadth, and core competencies. To put this into practice, we are evolving our organizational structure to create larger and broader business units. This gives us the opportunity to provide ongoing growth opportunities for our team and develop the next generation of markets specialists who are versatile and have broad knowledge of financial markets, financial market infrastructure, and policy operations, equipping them with the skills to deal with stress and contagion across multiple markets. We know that well designed and executed operations must be seamlessly conducted, with collaborative teams ensuring execution and settlement on platforms that are robust and efficient and use the latest technology.

The New York Fed has long been designated as the implementation arm of the FOMC, which makes sense given the centrality of New York in both domestic and international financial markets. Effective and efficient monetary policy implementation requires a practical and thorough understanding of the broad range of financial markets through which policy operates. By locating the duties related to the execution of monetary policy here in New York, the Federal Reserve System benefits from the collective institutional knowledge, experience in financial markets, and deep pool of specialized financial talent in the place where it is most concentrated. The New York Fed’s unique insights have been especially valuable during periods of stress, most notably in the 2008 financial crisis and the global COVID-19 pandemic.

The Impact of Our Work

Now, I’d like to talk about several concrete ways that the market intelligence we gather contributes to policy discussions globally. First, at each two-day FOMC meeting, the Markets Group—specifically, the System Open Market Account (SOMA) Manager—delivers the “Desk Briefing,” which covers financial market developments and market operations since the previous FOMC meeting. These briefings are built on all of the Markets Group’s core activities: market monitoring, open market operations, discount window lending, Treasury auctions, and reference rate production. FOMC members, some of whom are not as familiar with financial market developments, consider the briefing when discussing and voting on policy decisions. The briefing is a key way we ensure policymakers have a keen understanding of how monetary policy flows through to financial markets. It is also a tangible example of the way in which we leverage all the work of our team—including high-frequency market monitoring, in-depth analytics, and open market operations—in support of the mission of the Federal Reserve.

Zooming out a bit, in addition to our briefings and collaboration within the Federal Reserve System, we are one of the main connection points, along with the Board of Governors, for the Federal Reserve System’s interactions with international partners such as the Bank for International Settlements (BIS) and the Financial Stability Board (FSB). New York Fed President John Williams is the chair of the Markets Committee of the BIS. The Markets Committee serves as a forum for central bank officials to discuss current market conditions, market functioning, and monetary policy implementation. Over the years, the Committee has broadened its discussions from the initial focus areas of gold and foreign exchange to include a focus on core financial markets such as short-term money markets, sovereign debt, and foreign exchange more generally. Much as the Desk Briefing provides the FOMC with insights on the implementation and transmission of monetary policy, the Markets Committee at the BIS facilitates discussion of financial market functioning and implications for central bank policy across the globe. In a parallel to the Desk Briefing, insights from across the Markets Group’s areas of work are key inputs to the Markets Committee.

Zooming out even further, insights from our market intelligence gathering complement expertise from the New York Fed’s Supervision Group to support my work as a representative to the Committee on Payments and Market Infrastructure (CPMI). The CPMI is a committee of the BIS that brings together nearly 30 central banks from around the world to promote and monitor the safety and efficiency of payments, clearing, and settlement systems globally. As recently announced, the CPMI workplan for the coming year will focus on risk management of financial market infrastructures, enhancement of cross-border payments, and digital innovation in payments, clearing, and settlement. In my contributions to the discussions held in this forum, I rely upon the deep, specialized knowledge of payments systems from across the New York Fed, and in collaboration with the Board of Governors, to support the work of the CPMI.

Multiple Market Perspectives

In implementing monetary policy and gathering market intelligence, we recognize that insights from our outreach are only as valuable as the set of market participants and counterparties we engage with. We regularly interact with primary dealers and other financial institutions in our open market operations. To ensure that our market intelligence is robust and reflects the full range of perspectives across market players, we actively focus on building and developing relationships with a broader set of investors and market participants, including official sector institutions, both domestically and abroad. We achieve this through not only our counterparty relationships but also our outreach and industry work. As an example, the New York Fed’s advisory and sponsored groups allow us to glean insights from a range of market participants. There are several committees that together represent a wide range of types of market participants—including asset managers, broker-dealers, corporates, financial market utilities, GSIBs, hedge funds, and proprietary trading firms—and span a wide range of asset classes and investment strategies.

The Investor Advisory Committee on Financial Markets (IACFM) is comprised of investment industry leaders in both the private and public sector. Through regular dialogue, the IACFM provides a forum for leaders in the investment community to inform the New York Fed about financial market developments, conditions, and practices. We sponsor other committees that have a specific focus on particular segments of financial markets and advance industry wide initiatives. These include the Treasury Markets Practices Group, the Foreign Exchange Committee, and an upcoming committee focused on the use of robust reference rates that builds upon the work of the Alternative Reference Rates Committee.

Through these advisory and sponsored committees, we facilitate breadth in the universe of our market contacts. This ensures that we hear a wide range of viewpoints, thereby minimizing group think and giving us confidence that the market intelligence we pass on reflects viewpoints of the market as a whole. By design, these groups include different types of market participants. A couple stand out as particularly notable from a diversity standpoint. Last October, the Treasury Markets Practices Group named its first female chair, and members include industry leading women spanning trading, investment management, market infrastructure, and legal disciplines. The Foreign Exchange Committee remains one of the most diverse committees of its kind in the world in terms of women’s membership, including both industry representatives and ex officio members.  

From the perspective of our operations, we work to support diversity in our counterparties and procurement efforts. For example, while we regularly transact with some of the largest service providers in the world, we made a concerted effort while operating COVID-related emergency facilities to encourage minority, women, and veteran-owned firms to participate in our operations. We added 12 diverse firms to serve as counterparties or transaction agents, and we awarded a cash management mandate to a majority women-owned firm following a highly competitive procurement process. In our open market operations, we continue to explore opportunities to diversify the set of counterparties we engage with, which currently include not only primary dealers but also money funds, government sponsored enterprises, and depository institutions.

The Case for Diversity

I began working in the financial industry when it was substantially more homogenous. There were not many women on trading floors back then, and there were even fewer women in leadership roles. When I look at my leadership team now, I see women heading several of our core business functions, including the Trading Desk, the Discount Window, Central Bank and International Account Services, and Technology Product Strategy. As I list those aloud, I realize how amazing and thrilling it is for me to work with so many capable and intelligent women leaders. And I applaud the gains in diversity at the most senior ranks in our organization.

I am proud to share this room with such an impressive group of women who also have risen to the top of this industry due to their depth of expertise and years of hard work. Through events like this, we uplift and inspire one another. I am optimistic for the next generation entering the workforce and the opportunities that will be available to them. So while we celebrate the changes we have seen in our industry, I will note with humility that there is still a lot more work to do to build a more diverse and inclusive workplace.

Before I conclude, I wanted to express why I believe that diversity and inclusion are essential for our work in the Markets Group. Obviously, there's a moral imperative for diversity, and numerous studies have shown the benefits to both productivity and the bottom line. More personally, one of the principles underpinning my leadership career is that the people are every institution’s greatest asset. That’s why an inclusive culture is so important.

Throughout my time in both the public and private sectors, I have been wary when finding myself in a room full of people who look and sound the same. Perhaps they all come from a similar background, represent similar types of market participants, or are all sharing the same viewpoint on financial markets. We face dynamic challenges in markets, economics, and financial technology, and I want to hear different perspectives on how to interpret data, fresh takes on old problems, and innovative approaches to new challenges. In a time of rapid change, it is imperative to have a range of voices in the room, especially those that bring unique perspectives. As we build and maintain teams, it is crucial that we have not only the best people but a true variety of viewpoints and experiences. Without this, we will be unable to maintain our forward-looking leadership in financial markets.  

As former Supreme Court Justice and New York native Ruth Bader Ginsburg said, “We will all profit from a more diverse, inclusive society, understanding, accommodating, even celebrating our differences, while pulling together for the common good.”

By working to hear as many perspectives and viewpoints as possible, we uncover new ideas and innovative solutions, paving the way for a dynamic, brighter future.

Thank you very much.

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